In these sober times, credit is often extremely difficult to get, but responsible consumers – as well as those battling with debt – wanting to manage their personal finances wisely are often unaware of the tremendous opportunities that rest within their mortgage bonds.
Particularly in the case of over-indebted consumers, a mortgage bond could be a rescue, explains Michael Bouchier, managing director of Credit Health. "Your bond could be used to consolidate your debt, relieving the financial pressure and helping to avoid insolvency, in many cases."
He adds that while debt consolidation can certainly ease financial pressures, a debt consolidation re-mortgage is not a decision to be taken lightly. The most important issue to understand is that once you put all your debts into your home loan, they become secured debt.
"A secured loan is linked to your home, the home being security for that loan. It can be a good solution for people who have equity in their property and are over-indebted," says Bouchier.
He explains that in these types of cases, the equity would have to be large enough to cover all the debts an individual has accumulated. "Debt consolidation, by its very definition, involves covering all the debt the consumer has generated, not just a portion of the debt. That means that all the debt must be accommodated by the equity of the home – not just a portion of the debt."
This type of consolidation therefore creates affordability for the increased home loan amount to be paid: by cancelling all other debts, the consumer has access to more money at the end of every month. In addition to freeing up more money and relieving the financial pressure, debt consolidation also repairs a damaged credit record. "From the minute the debts are repaid, the consumer no longer runs the risk of returned debit orders and negative credit references," says Bouchier.
"The core of the solution is to change the way you approach credit and repayments. This is a rehabilitative tool to get you on the path to recovery, and there can be no recovery unless spending habits change."
Readers' Comments Have a comment about this article? Email us now.
I personally believe that one must set aside time to clear off his debts, and that involves communicating with debtors for easy terms. Discipline is important. If one wants something that he considers as a bargain, and then lay bye is the best approach. Once one has cleared his debts, he must have a cool off period at which he saves the bulk that would otherwise have gone to settle debts. This is also a period of dealing with your credit profile. – Anonymous
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